FULL YEAR RESULTS

RNS Number : 0458W

Chemring Group PLC

24 January 2012

 



FOR IMMEDIATE RELEASE

24 January 2012

CHEMRING GROUP PLC

PRELIMINARY RESULTS

FOR THE YEAR ENDED 31 OCTOBER 2011

·		Revenue up 25% to £745.3 million (2010: £597.1 million)
·		Organic revenue growth~ of 9% in difficult market
·		Non-NATO revenues up 81% to 29% of total Group revenue (2010: 20%)
·		Year end order book up 9% at £878.3 million (2010: £803.3 million)
·		Order book today at £980 million, up 9% on January 2011
·		Underlying profit before tax* up 6% to £125.6 million (2010: £118.7 million#)
·		Underlying earnings per share* up 5% at 52.1p (2010: 49.8p#)
·		Profit before tax £90.8 million (2010: £89.1 million)
·		Basic earnings per share 39.8p (2010: 37.8p#)
·		Dividend per ordinary share up 25% at 14.8p (2010: 11.8p#)
·		Underlying operating cash flow* £124.6 million (2010: £128.0 million#)
·		Net debt of £262.7 million (2010: £307.5 million)
Divisional PERFORMANCE
Counter-IED
·		NIITEK increased revenue by 24% to £126.9 million, with 77 HMDS units delivered to the US Army
·		Chemring Ordnance awarded multi-year contract, worth up to $150 million, to supply the Mk7 Anti-Personnel Obstacle Breaching System (APOBS) to the US Army and US Marine Corps
·		Chemring Detection Systems acquired in July and performed in line with expectations
Countermeasures
·		Full year contribution from Roke
·		Expendable countermeasures revenues declined as expected
·		Kilgore restarted production and revenue reached new record
Pyrotechnics
·	Reduced revenues for illuminating products in both UK and US markets
·	M992 pyrotechnic 40mm round named by US Army as one of top ten inventions
·	Margin maintained in line with last year
Munitions
·	Revenue more than doubled to £237 million
·	Demand for 90mm and 40mm grenade ammunition almost triples
·	Revenue from naval ammunition grows by 122%

Peter Hickson, Chemring Group Chairman, commented:

"Chemring produced another year of growth in profits and earnings, with revenue up 25% to £745.3 million and underlying profit before tax* up 6% to £125.6 million.

The Board has considered its long term dividend policy as part of a balance sheet review. For many years, the Group has adopted a policy of maintaining dividend cover at around four times. With our strong annual cash generation, we believe it would be appropriate to bring the cover down to three times over the next year. As part of this move, the proposed total dividend of 14.8p for 2011 will be covered 3.5 times by underlying after tax earnings*, compared with 4.2 times last year. We have also concluded that we should consider returning surplus capital to shareholders whilst maintaining the strength of the balance sheet. Accordingly, we will seek approval at the forthcoming Annual General Meeting to renew our authority to buy back shares, when it is considered appropriate, over the course of the next year. We would only expect to exercise this authority for a buyback of up to £50 million of shares.

During the last year, many governments have struggled with increasing deficits and lower economic growth. This has affected defence procurement, leading to volume reductions and delays. The continuing problems of the Eurozone and the impact of possible sequestration in the US indicate that our traditional markets will not be any easier this year. We continue to pursue our policy of reducing our dependence on these markets, and are actively seeking more business from elsewhere. Our order book has risen by 12% since the year end and currently stands at £980 million. It is encouraging to note that 44% of today's order book emanates from non-NATO markets, and this compares with 33% at the same time last year. We see further good growth prospects in these markets and will pursue the opportunities they offer. I am confident that we have the products, the management and technological skills to achieve our objectives and provide the foundation for steady growth."

For further information:

Dr David Price	Chief Executive, Chemring Group PLC	0207 930 0777
Paul Rayner	Finance Director, Chemring Group PLC	0207 930 0777
Rupert Pittman	Director of Communications and Investor Relations, Chemring Group PLC	0207 930 0777
Anthony Cardew/ Emma Crawshaw	Cardew Group	0207 930 0777

* Before acquisition related costs, restructuring and incident costs, provision release, (gain)/loss on fair value movements on derivatives and intangible amortisation arising from business combinations (see Note 3)

^# Restated figures for prior year to reflect the subdivision of shares (see Note 5), as well as the reclassification of certain items from underlying costs to non-underlying costs (see Note 3) 

^~ Organic growth at constant US dollar excludes growth from contracts and customers acquired with Roke, Mecar and Chemring Detection Systems

Cautionary Statement: 

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Chemring's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for engineering or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Chemring undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

Notes to Editors

•       Chemring is a manufacturing business with facilities in eight countries selling high technology electronics and energetic products to over eighty countries worldwide.

•       The Company has a diverse portfolio of products protecting military people and platforms against a constantly changing threat.

•       Operating in high margin, niche markets with short product development timescales, Chemring has the agility to rapidly react to urgent customer needs.

•       Chemring adopts a balanced strategy of organic growth and small bolt-on acquisitions, and maintains balanced geographic and market profiles, with a growing presence in non-NATO countries.

•       Strong R&D investment for new products and improvements in technology continually allows Chemring to expand its addressable markets.

www.chemring.co.uk

Presentation

The presentation slides and a live audio webcast of the presentation to analysts will be available at the Chemring Group results centre www.chemring.co.uk/resultscentre at 09.30 (UK time) on Tuesday 24 January 2012. A recording of the audio webcast will be available later that day.

Photography

Original high-resolution photography is available to the media by contacting Emma Crawshaw, Cardew Group. [e-mail] / Tel: [phone]

RESULTS

Chemring produced another year of growth in profits and earnings, although both were affected in the last month by a slippage of deliveries into the current financial year.

Total revenue was £745.3 million (2010: £597.1 million), an increase of 25%. Revenue arising from the acquisition of Chemring Detection Systems in 2011 was £14.6 million, 2% of the increase. Organic revenue growth^~ was 9%. Roke and Mecar, which were acquired in September 2010, contributed 17% of the Group revenue increase. During the year, the US dollar depreciated against sterling, which reduced the reported sterling revenues of US subsidiaries by £15.1 million, equivalent to 3%.

An analysis of the underlying results is set out below:

	2011	2010
	£m	£m
Total revenue	745.3	597.1
Divisional operating profit	151.8	147.9
Unallocated corporate costs	(10.0)	(10.4)
Underlying operating profit	141.8	137.5
Share of post-tax results of associate	0.1	0.1
Finance income	0.1	0.5
Finance expense	(16.4)	(19.4)
Underlying profit before tax	125.6	118.7
Tax on underlying profit before tax	(28.8)	(30.7)
Underlying profit after tax	96.8	88.0

An analysis of revenue and divisional operating profit by segment* is set out below:

	2011			2010
		Underlying	Underlying		Underlying	Underlying
		operating	operating		operating	operating
	Revenue	profit*	margin	Revenue	profit*#	margin
	£m	£m		£m	£m
Counter-IED	167.6	31.9	19%	114.9	28.1	25%
Countermeasures	200.8	46.7	23%	196.3	58.8	30%
Pyrotechnics	139.9	32.4	23%	170.0	40.1	24%
Munitions	237.0	40.8	17%	115.9	20.9	18%
Divisional results	745.3	151.8	20%	597.1	147.9	25%

Counter-IED revenue increased 46% to £167.6 million, due to increased revenue at NIITEK for HMDS spares and support, together with a £14.6 million contribution from Chemring Detection Systems. Operating margins reduced to 19%, largely due to pricing pressure on NIITEK's products. Chemring Detection Systems' 15% margin also diluted the overall margin for this segment.

Countermeasures revenue grew by 3% but underlying operating profit* reduced 21%, largely due to lower demand for decoys at Alloy Surfaces, which was only partially offset by revenue from Roke at a lower margin of 10%.

Pyrotechnics revenue decreased 18% to £139.9 million and underlying operating profit* decreased 19% to £32.4 million, principally due to lower demand for 81mm illumination products.

Munitions grew the most, with revenue increasing 104% to £237.0 million following a strong second half performance from Mecar. Mecar's margin grew to 10% in the second half from a negative margin at the half year.

Unallocated corporate costs were £10.0 million, slightly down on 2010. In 2010, two non-recurring cost items, which netted out at £1.9 million (£4.3 million charge, £2.4 million credit) were included in unallocated corporate costs but with the reformatting of the Income Statement this year these items have now been reclassified as non-underlying items in order to be consistent year-on-year. The impact of this reclassification is an increase in underlying operating profit* for 2010 to £137.5 million from £135.6 million, although divisional operating profits are unchanged.

Total underlying operating profit* was £141.8 million (2010: £137.5 million), an increase of 3%.  Underlying operating profit* generated by Chemring Detection Systems was £2.2 million. Roke and Mecar contributed £9.0 million. The impact of the depreciation of the US dollar against sterling reduced the US subsidiaries' reported sterling profits in 2011 by £3.6 million. Without this depreciation, growth in total underlying operating profit* in 2011 would have been 6%.

Total underlying operation margin* reduced to 19% from 23% last year. Approximately half this reduction is attributable to lower margins at Alloy Surfaces and NIITEK, with the other half reflecting the impact of acquired businesses with lower margins than the Group average.   

Finance income in the year was £0.1 million (2010: £0.5 million). Finance expense for the year was £16.4 million (2010: £19.4 million), a decrease of 15%. Included within finance expense is £0.7 million (2010: £1.2 million) for retirement benefit obligations. Net finance expense was covered 8.7 times (2010: 7.3 times) by underlying operating profits. 

Underlying profit before tax* was £125.6 million (2010: £118.7 million^#), an increase of 6%.

Tax on underlying profit before tax* was £28.8 million (2010: £30.7 million), representing an underlying rate of 23% (2010: 26%). The reduction in the tax rate arises from the utilisation of R&D tax credits across the Group, particularly at Roke, together with the partial utilisation of tax losses within our European businesses which had not previously been recognised.

Underlying profit after tax* was £96.8 million (2010: £88.0 million^#), an increase of 10%.

The order intake for the Group was £819 million, which was slightly lower than last year. We saw strong order book growth in our Counter-IED and Munitions businesses, which was offset by a downturn in orders received in the Countermeasures and Pyrotechnics divisions. These two divisions suffered from reduced customer demand, which was driven, in the main, by government fiscal and budgetary controls. The closing order book reached £878 million, which was 9% above last year.

analysis of non-underlying items

The Board monitors underlying operating profit and underlying profit before tax for reporting purposes so as to not distort year-on-year comparisons, hence certain items are classed as non-underlying as set out below:

	2011	2010#
	£m	£m
Acquisition related costs	5.7	6.7
Restructuring and incident costs	7.2	4.3
Provision release	-	(2.4)
(Gain)/loss on fair value movements on derivatives	(2.4)	4.0
Intangible amortisation arising from business combinations	24.3	17.0
Total non-underlying items	34.8	29.6

Acquisition related costs include the external costs incurred in acquiring businesses in 2010 and 2011, together with costs associated with an aborted bid and the establishment of joint ventures.

In 2011, the restructuring and incident costs related to the closure of Plant 3 at Alloy Surfaces (£1.1 million) and the start-up of production at Mecar following the incident that occurred in September 2010 (£2.3 million). At the end of October 2011, the Board decided to exit some loss-making munitions product lines in the US, and in addition to minor losses, a provision has also been made for excess inventory and fixed assets (£3.8 million).

In 2010, the restructuring and incident costs included the restructuring of the Group's UK Counter-IED business at a cost of £1.5 million. As a result, one of the two sites out of which it operated was closed. Also, there were two separate incidents that stopped production at the Kilgore Flares facility in Tennessee and Mecar in Belgium. As a result of these incidents, £2.8 million of non-recurring costs were incurred in respect of the write-off of damaged stock and destroyed assets.

During 2010, part of the provision held in respect of the environmental liabilities associated with the Chemring Energetic Devices site in Illinois was released, following a third party assessment of the provision. This resulted in a £2.4 million non-recurring credit to the Income Statement.

A gain on derivatives of £2.4 million arose this year, due largely to the movement in the sterling/ dollar exchange rate during the year. 

Intangible amortisation arising from business combinations increased in the year, with a full year amortisation of assets acquired with the Mecar and Roke acquisitions, and four months' amortisation arising from the acquisition of Chemring Detection Systems.

Counter-ied 

·	Orders: £207 million
·	Revenue: £168 million
·	Operating profit: £32 million
·	Operating margin: 19%

Our Counter-IED division had another excellent year, achieving a 46% increase in revenue to a record level of £167.6 million, reflecting strong growth in various detection and disable sub-segments of the markets. NIITEK had an outstanding year, increasing its revenue by 24% to £126.9 million, driven by high level of demand for spares and support for the 200+ HMDS systems in service with the US and Canadian Armies on peacekeeping operations. Chemring Ordnance also had a successful breakthrough into the "defeat" part of the US counter-IED market by winning the multi-year competition for the manufacture of the APOBS for the US Army and Marine Corps. This system is designed to safely clear a footpath through anti-personnel mines and multi-strand wire obstacles. Production under the contract, which is worth up to $150 million over the next four years, will start in the second half of 2012.

Our HMDS ground penetrating radar continues to operate successfully during counter-IED operations in Afghanistan and has saved the lives of many US and coalition soldiers. During 2011, NIITEK delivered 77 HMDS systems to the US Army taking the number of systems supplied to over 240. Negotiations with the US Army for a multi-year sustainment contract, covering systems, spares and support and potentially worth in excess of $500 million, has been underway for many months, and the contract is expected to be received by the end of the second quarter.  This will support the operation of the HMDS fleet until withdrawal from Afghanistan in 2015.

Good progress has also been made in developing the export market for HMDS. Agreement has been reached with MBDA Italy to provide the Italian Army with a modified ground penetrating radar system to go on the Calife pushed trailer and the IVECO VTMM multi-role tactical vehicle. Full development will be completed in 2012 and production is expected in 2012 and 2013. The Australian Defence Force has also selected HMDS for its counter-IED operations, and is looking to procure systems through the US Foreign Military Sales channels. 

The US Army's acquisition of a next-generation IED detection system, involving more advanced multi-sensor technology and data fusion, will probably take place in 2013, and they have confirmed that they expect to purchase in excess of 500 systems over a five year period.

In 2012, the US Army will take the Milestone C decision to start full rate production of the nuclear, biological and chemical reconnaissance vehicle - Stryker Suite. An additional 100 vehicles will be built in 2012 and a further 50 in 2013. This will boost demand for both the biological (JBPDS) and chemical detection systems (JSLSCAD) supplied by our new subsidiary, Chemring Detection Systems, and will generate good growth over the next few years. 

The Group has also continued work on a customer-funded development programme for stand-off explosives detection. Three systems were manufactured and delivered for early user testing during 2011. Additional work is expected in 2012 to continue early user testing, to complete a production readiness phase of the current generation system, and to work on a next generation system for vehicle-mounted applications with on-the-move capability.

The qualification of our range of insensitive demolition stores is making good progress, and considerable export interest has been generated, both within and outside NATO, by our SABREX flexible linear cutting charge. The global market for products used to "defeat" the threat remains steady at £300 million, and represents an important area for future growth. The award of the multi-year APOBS contract to Chemring Ordnance by the US Army was a strong endorsement of the investment in technology and facilities. Technology transfer of our next generation demolition stores to the US should help capture a sizable share of the global market.

The order book for our Counter-IED division was £127 million at the end of the year, 28% higher than the previous year. The growth has been driven by the APOBS contract. The HMDS multi-year sustainment contract has taken many months to negotiate, and the delay is reflected in the reducing order book. The delayed timing of the new contract will impact revenues at NIITEK in 2012. However, revenue from Chemring Detection Systems will offset this reduction, and overall, the Board expects good growth from this segment in 2012. 

Countermeasures

·	Orders: £155 million
·	Revenue: £201 million
·	Operating profit: £47 million
·	Operating margin: 23%

Our Countermeasures division delivered a steady performance, achieving a 3% increase in revenue to £200.8 million, including the full year contribution from Roke, which was acquired in 2010. The expendable countermeasures revenues, however, dropped by 17%, with a 29% reduction in demand from our principal customers for decoys used to protect helicopter and transport aircraft, in anticipation of the planned withdrawal from Afghanistan in 2014. Two upgraded naval countermeasure rounds completed their development and qualification programmes during the year and production deliveries are expected to contribute to growth from 2012 onwards.

In Afghanistan, the total NATO deployment is still 130,000 troops. However, coalition forces have announced their intention to withdraw their troops by 2015, starting with a reduction of nearly 40,000 by the end of 2012. In anticipation of this withdrawal and, under pressure from budget constraints, most of our customers have cut back significantly on the purchase of flares and decoys needed for the protection of helicopters and transport aircraft. A combination of reductions in the volumes ordered and delays in order placement is quickly reducing the current stock piles. Further reductions are anticipated in 2012, which will take production on some decoys down to a minimum sustainable level.

The major growth in expendable countermeasures over the next five years will, however, be associated with the supply of flares and countermeasures to protect fast jets. These are principally used in operations against sophisticated opponents, where war stocks need to be in place for high volume usage during intense battle conditions. Two aircraft, Typhoon and the F-35 Joint Strike Fighter (JSF), will dominate the market over the next ten to fifteen year period.  A technical problem with the dispenser, manufactured by a third party, has delayed volume production of the Typhoon units, and we are still in low rate initial production with the JSF flare set. With the approval of the US government, Chemring Australia has been identified as a second source supplier for JSF countermeasures and, after the US Department of Defense qualifies production in Australia, will compete with Kilgore for a share of the long-term production.

Another major area of growth over the next few years is naval countermeasures. These are designed to protect ships against incoming missiles, particularly in circumstances when rapid-fire gun systems cannot be used, such as in shallow water next to other friendly vessels. During 2011, the Group completed development of a range of new payloads to meet the changing threat and is now starting to manufacture these next generation products. The Group has also purchased, from Lockheed -Martin, the manufacturing assets and intellectual property for certain legacy US naval rounds. Our new designs and the detailed knowledge of current US in-service rounds will position us strongly for a new US Navy procurement programme which will run from 2013 onwards.

The Group has also made good progress in the development of its new trainable launcher system, Centurion. A series of land-based firing demonstrations were successfully undertaken last year, and a fully operational prototype is now in manufacture. Discussions with the Royal Navy on sea trials are underway, and the Italian Navy has recently expressed strong interest in undertaking an extended sea trial of the system on one of their San Antonio Landing Platform Dock vessels. Considerable interest has been shown by a number of US, Middle East, Far East and South American customers.    

The order book for our Countermeasures division decreased by 12% to £234 million during 2011. Although this is normally a reliable lead indicator of trends over the next twelve months, it does not take into account the high level of backlog at Kilgore or the delays in order placement caused by the US government's Continuing Resolution funding. Strong growth in deliveries of decoys for combat aircraft programmes are, therefore, expected to compensate for the reduction in demand for those used on helicopters and transport aircraft, and a stable level of revenue can be expected for this segment.

Pyrotechnics

·	Orders: £107 million
·	Revenue: £140 million
·	Operating profit: £32 million
·	Operating margin: 23%

Our Pyrotechnics division generated revenue of £139.9 million, 18% lower than last year, with a large number of annual orders placed at reduced volumes, or deferred completely, as European and US governments reduced expenditure as part of their deficit control programmes. However, we did successfully capture the competitive, multi-year contracts for the improved submarine distress signals for both the UK and US Navy customers. These will put us in a strong position to address the global market, where the demand for diesel submarines continues to grow.

There continues to be strong interest in illuminating payloads for use in peacekeeping operations. We have developed a family of "white light" and "black light" payloads for the full range of mortar calibres, large calibre ammunition and for low signature, hand-held rockets that can be used by individual soldiers. These are all expected to enter into volume manufacture during 2012 and 2013. 

We have also completed the initial development of a payload for the replacement of white phosphorous in smoke/screening payloads. A 120mm spotting round has completed development and will be qualified by the US Army in 2012 for sale to Middle East customers under the Foreign Military Sales programme.

The overall order book for the Pyrotechnics division reduced by 16% to £145 million, with large reductions in the smoke/illumination and training parts of the market. However, the Pyrotechnics order book has a much shorter coverage, and the opening order book does not adequately characterise the scale of in-for-out orders that make up the full year performance.

Lower demand for training and aircraft safety products is expected in 2012 but further growth in revenues for smoke, illumination and space products means that revenues approaching 2010 levels can be expected.

Munitions

·	Orders: £349 million
·	Revenue: £237 million
·	Operating profit: £41 million
·	Operating margin: 17%

Our total Munitions revenue in 2011 was £237 million, a 104% increase on the previous year and equating to a market share of 6%. Our highest growth comes from the sale of ammunition for light armoured vehicles (LAVs), which increased by 198% to £158 million of revenue. Naval ammunition sales increased by 122% to £20 million, as deliveries of 76mm ammunition started to ramp upwards. The global market for munitions components is estimated to be £2 billion.  In 2011, our revenue from components was £58 million, representing 24% of our total Munitions revenue, an increase of 8% compared with the previous year and equating to a market share of 3%. 

The closing order book for the Munitions division was £372 million, an increase of 39% on the previous year, and a clear indication of further growth in 2012. About 71% of the order book is from non-NATO customers.

The naval ammunition market continues to grow, principally driven by the number of 76mm guns fitted to new naval ships. There is considerable interest in our products from Middle East and South American customers. A live-firing demonstration is planned in Italy to demonstrate its capability against pirate boats or fast attack craft to a number of Middle East customers.

The Middle East and South America are also growing markets for our 90mm, 105mm and 115mm ammunition. In particular, the CMI 90mm Mk8 gun is often fitted to the LAVs prevalent in these regions, and offers the Group a substantial opportunity to develop new customer relationships and markets.  Discussions are also underway with the Brazilian government for the supply of 90mm ammunition for the 400 new Iveco LAVs which they are planning to acquire over the next ten years.

The Group is under contract with General Dynamics Land Systems, Canada for the supply of vehicle-based 120mm mortar systems for sale under a US Foreign Military Sales programme. System deliveries will commence in 2012 and will involve production testing by the US Army during 2012 and 2013, using Mecar supplied ammunition. New inspection requirements from the US government have delayed the expected delivery programme and the majority of deliveries are now scheduled for 2013.  Annual ammunition contracts are then expected.

The order book for the Munitions division grew by 39% to £372 million in 2011, with strong growth in both the land and naval prime contract markets. Growth in 2012 revenues is expected to be good, albeit at a lower rate than would be implied by the increase in the opening order book. 

ELECTRONICS

In line with the Group's strategy, electronics, including electronic countermeasures and IED detection systems, is of growing importance across our four market segments. With the acquisition of Chemring Detection Systems and Roke, we have significantly enhanced our capabilities in electronic systems design, development and integration. In 2011, electronics contributed 40% of the Group revenue, and this is expected to grow to 50% over the next five years. These electronic capabilities are in five niche areas:

·      Initiation - delays, sequencing and safety/arming

·      Detection - radar and infra-red stand-off technologies

·      Electronic warfare- interception of communications and electronic attack

·      Electronic countermeasures - active jamming systems

·      Network protection- legal intercept and anomaly detection

Roke has become a strategic European centre-of-excellence for product and technology development of electronic systems. It is heavily engaged in the system engineering and software development of our Centurion countermeasure launcher, it is designing low-cost, active-jamming technology for our air and naval expendable markets, and it has completed the design of our new SPLINTER hand-held mine detector.  

In 2011, Roke was given the Queens Award for Innovation for its RESOLVE modular, man-portable, electronic warfare system for the exploitation and suppression of hostile communication equipment. RESOLVE is now in service with the UK Ministry of Defence and a number of customers in the global export market. Roke has produced and demonstrated a vehicle-mounted RESOLVE capability, and there is strong interest from Europe and the Middle East in vehicle-mounted surveillance systems for dedicated electronic surveillance applications. 

Principal Risks and Uncertainties

The principal risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results have not changed significantly from those set out in the Group's 2010 Financial Statements and the 2011 Interim Report. These can be summarised as:

·           Health and safety risks

·           Political, economic and financial risks, including possible defence budget cuts

·           Risks associated with the timing of receipt of orders

·           Risks associated with the introduction of new manufacturing facilities

·           Risks associated with the introduction of new products

·           Risks related to the strength and breadth of management resource

·           Competitive risks

·           Compliance and corruption risks

·           Financial risks, including credit, interest rate and foreign exchange risks

Acquisitions

On 1 July 2011, the Group completed the acquisition of the Detection Systems operations and certain related assets of General Dynamics Armament and Technical Products, a subsidiary of General Dynamics Corporation, for a cash consideration of $90 million (£56.1 million). The business, which has been renamed Chemring Detection Systems, is based in Charlotte, North Carolina, and is a US leader in chemical and biological threat detection. It also has advanced capability in the stand-off detection of improvised explosive devices.

A summary of the business acquired, together with the provisional fair value adjustments made on acquisition is set out below:

	Book value	Provisional fair value adjustments	Fair value
	£m	£m	£m
Intangible assets	4.8	30.3	35.1
Property, plant and equipment	4.2	(0.7)	3.5
Overdraft assumed	(1.9)	-	(1.9)
Working capital	8.0	(2.1)	5.9
Net assets acquired	15.1	27.5	42.6
Goodwill			13.5
Total			56.1
Total cash consideration			56.1

During the year, the provisional fair value adjustments made to the 2010 acquisitions were finalised. As a result, the net assets of the acquired companies increased by £5.4 million, with a commensurate reduction in goodwill. As required by accounting standards, the 2010 balance sheet has been restated.

During the summer, we were in discussions with a third party regarding a significant acquisition that would have made a major impact to our market position. However, the restructuring required to deliver the full benefit was considerable, and we felt that the vendor's valuation of the business was too high. Although we are no longer pursuing this opportunity, the core strategy of the Group remains focused on organic growth that is augmented by small bolt-on acquisitions.   

Research and Development

Research and development expenditure totalled £59.6 million (2010: £34.2 million), 74% higher than last year. The increase reflects the Group's investment in future growth, and includes the significant full year impact of Roke's customer-funded research and development.  An analysis of expenditure is set out below:

	2011 £m	2010 £m
Customer-funded research and development	38.4	20.6
Internally-funded research and development	21.2	13.6
Total research and development expenditure	59.6	34.2

£12.4 million (2010: £7.8 million) of the internally-funded research and development costs were capitalised in the year.

The Group's policy is to write-off capitalised development costs over a three year period. Amortisation of development costs was £2.4 million (2010: £2.1 million).

PENSIONS

The deficit on the Group's defined benefit schemes before associated tax credits, as defined by IAS 19 Accounting for pension costs, was £25.2 million (2010: £23.0 million). 

The Chemring Group Staff Pension Scheme is a defined benefit scheme, with the assets held in a separate trustee-administered fund. A full actuarial valuation for the Staff Pension Scheme as at 6 April 2009 has been prepared and updated to 31 October 2011 by a qualified actuary, using the projected unit credit method. 

The Group has given a bank guarantee and letters of credit totalling £27.2 million (2010: £7.2 million) to the Staff Pension Scheme. The guarantee and letters of credit may be drawn upon in certain events of default by the Company. The increase in this contingent funding during the year resulted in the release of the £15.0 million of previously restricted cash pledged to the Staff Pension Scheme, with £5.0 million of the increase being provided in line with the agreed funding plan. 

The Group is currently consulting with active members of the Staff Pension Scheme on the proposed closure of the scheme to future accrual.

Most of our UK employees are now offered membership of a defined contribution pension scheme. The majority of our overseas pension arrangements are also defined contribution, save in those European countries where certain defined benefit pension arrangements are required.

Cash Flow

Underlying operating cash flow* was £124.6 million (2010: £128.0 million^#), which represents a conversion rate of underlying operating profit* to operating cash of 88% (2010: 93%).

Fixed asset expenditure across the Group was £61.7 million (2010: £48.7 million), which includes £19.7 million related to the construction of new facilities at our sites in Salisbury and Australia, and £4.5 million relating to new facilities in Scotland.

Tax payments were lower than last year due to the availability of R&D tax credits and lower tax rates, combined with the timing of payments.

Interest was higher due to the timing of interest payments relating to some of the US loan notes.

A summary of underlying Group cash flow is set out below:

	2011	2010
	£m	£m
Underlying operating cash flow	124.6	128.0
Fixed asset expenditure	(61.7)	(48.7)
Tax	(17.2)	(30.0)
Interest	(17.8)	(14.0)
Underlying free cash flow	27.9	35.3

WORKING CAPITAL

A summary of working capital balances is set out below:

	2011 £m	2010 £m	Variance £m
Inventories	146.8	141.3	5.5
Trade receivables	164.1	139.1	25.0
Trade payables	(105.3)	(100.1)	(5.2)
Advance payments	(48.7)	(52.8)	4.1
Total working capital	156.9	127.5	29.4
Total working capital days	77	78

Overall working capital increased by 23% on 2010, slightly lower than the increase in revenue. Total working capital days are consistent with last year at 77 days (2010: 78 days). Trade receivables were 18% higher than 2010, although lower than the rate of revenue growth. At the end of 2010, trade payables were high as a result of payables acquired with Mecar. During the first half of 2011, these trade payables were settled. It is anticipated that working capital will reduce in 2012.

BALANCE SHEET

In April 2011, £112 million of new equity was raised in order to fund two potential acquisitions. We went ahead with the purchase of Chemring Detection Systems but did not, in the end, proceed with the other potential opportunity, as further investigation indicated that it would not generate sufficient value. In the light of this, the Board has reviewed the balance sheet to determine the appropriate levels of debt and gearing for the Group in the future. We have taken a cautious view in the light of the world's economic and financial uncertainties and will continue reducing debt levels when appropriate. However, we have also concluded that we should consider returning surplus capital to shareholders whilst maintaining the strength of the balance sheet. Accordingly, we will seek approval at the forthcoming Annual General Meeting to renew our authority to buy back shares, when it is considered appropriate, over the course of the next year. We would only expect to exercise this authority for a buyback of up to £50 million of shares.

The Board also considered its long term dividend policy as part of this balance sheet review. For many years, the Group has adopted a policy of maintaining dividend cover at around four times. With our strong annual cash generation, we believe it would be appropriate to reduce the cover to three times over the next year. As part of this move, the proposed total dividend for 2011 will be covered 3.5 times by underlying after tax earnings*, compared with 4.2 times last year.

Net Debt, Facilities and Going Concern

Net debt at the year end was £262.7 million (2010: £307.5 million), a decrease of 15%. The Group had £150.1 million (2010: £104.6 million) of undrawn borrowing facilities at the year end.

On 14 January 2011, the Group completed a refinancing of its bank facilities with a syndicate of five banks. The new Group facilities, which are unsecured, total £230 million, a £55 million increase on the previous secured facilities. The term of the facilities is now through to April 2015.

Gearing at the year end was 55% (2010: 95%).  A summary of debt is set out below:

	2011	2010
	£m	£m
Cash	91.9	58.4
Loans and finance leases	(94.4)	(104.7)
Loan notes	(260.2)	(261.2)
	(262.7)	(307.5)

The directors have acknowledged the latest guidance on going concern. Whilst the current volatility in financial markets has created general uncertainty, the Group has significant working capital headroom and strong covenant compliance. Thus, the directors have a reasonable expectation that adequate financial resources will continue to be available for the foreseeable future.

Dividends

In line with the revised dividend policy outlined above, the Board is recommending a final dividend for the year of 10.8p (2010: 8.4p). With the interim dividend paid of 4p (2010: 3.4p), this gives a total dividend for 2011 of 14.8p (2010: 11.8p), an increase of 25%. The dividend is covered 3.5 times by underlying after tax earnings*, and with a solid balance sheet and cash flow, the Group remains well positioned to increase its return to shareholders. 

SHAREHOLDER RETURNS

Underlying basic earnings per ordinary share* was 52.1p (2010: 49.8p^#), an increase of 5%. Basic earnings per share were 39.8p (2010: 37.8p), an increase of 5%.

The Group's underlying return on capital employed was 19% (2010: 22%).

Shareholders' funds at the year end were £475.4 million (2010: £323.2 million), an increase of 47%.

BOARD OF DIRECTORS

David Evans, who has been a director since 1988, first as Chief Executive and for the last seven years as a non-executive director, has indicated his intention to retire from the Board at the Annual General Meeting in March. During his time with the Group, David has made a major contribution to its development, and the Board would like to take the opportunity to thank him and wish him well in the future. 

Prospects

During the last year, many governments have struggled with increasing deficits and lower economic growth. This has affected defence procurement, leading to volume reductions and delays. The continuing problems of the Eurozone and the impact of possible sequestration in the US indicate that our traditional markets will not be any easier this year. We continue to pursue our policy of reducing our dependence on these markets, and will actively seek more business from elsewhere. It is encouraging to note that 44% of today's order book emanates from these non-NATO markets, compared with 33% at the same time last year. We see further good growth prospects in these markets and will pursue the opportunities they offer. We are confident that we have the products, the management and technological skills to achieve our objectives and provide the foundation for steady growth.

Responsibility Statement of the Directors on the Annual Report and Accounts

The responsibility statement below has been prepared in connection with the Company's full Annual Report and Accounts for the year ended 31 October 2011. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

1.	The financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
2.	The Statement by the Chairman, the Review by the Chief Executive and the Review by the Finance Director, together with the sections of the Annual Report on each of the business segments, key performance indicators and principal risks, and the Corporate Responsibility Review, which are incorporated into the Directors' Report, include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

This responsibility statement was approved by the Board of Directors on 24 January 2012 and has been signed on its behalf by Dr D J Price and Mr P A Rayner.

* Before acquisition related costs, restructuring and incident costs, provision release, (gain)/loss on fair value movements on derivatives and intangible amortisation arising from business combinations (see Note 3)

^# Restated figure for prior years to reflect the subdivision of shares (see Note 5), as well as the reclassification of certain items from underlying costs to non-underlying costs (see Note 3)

SUMMARY FINANCIAL INFORMATION

		Note	2011	2010
			£m	£m#
Revenue
Counter-IED			167.6	114.9
Countermeasures			200.8	196.3
Pyrotechnics			139.9	170.0
Munitions			237.0	115.9
Total revenue		2	745.3	597.1
Underlying operating profit*
	- continuing operations		139.6	137.5
	- acquired		2.2	-
Total underlying operating profit*			141.8	137.5
Underlying profit before tax*			125.6	118.7
Underlying basic earnings per ordinary share*			52.1p	49.8p
Operating profit			107.0	107.9
Profit before tax			90.8	89.1
Basic earnings per ordinary share			39.8p	37.8p
Diluted earnings per ordinary share			39.4p	37.4p
Dividend per ordinary share			14.8p	11.8p
Net debt (£m)			262.7	307.5
Shareholders' funds (£m)			475.4	323.2

* Further information about non-underlying items can be found in Note 3

^# Restated figures for prior year to reflect the subdivision of shares (see Note 5), as well as the reclassification of certain items from underlying costs to non-underlying costs (see Note 3)

CONSOLIDATED INCOME STATEMENT

for the year ended 31 October 2011

		2011			2010
					As restated#
		Underlying	Non-		Underlying	Non-
		business	underlying		business	underlying
		performance*	items	Total	performance*	items	Total
		£m	£m	£m	£m	£m	£m
Continuing operations
Revenue
	- continuing	730.7	-	730.7	597.1	-	597.1
	- acquired	14.6	-	14.6	-	-	-
Total revenue		745.3	-	745.3	597.1	-	597.1
Operating profit
	- continuing	139.6	(33.5)	106.1	137.5	(29.6)	107.9
	- acquired	2.2	(1.3)	0.9	-	-	-
Total operating profit		141.8	(34.8)	107.0	137.5	(29.6)	107.9
Share of post-tax results of associate		0.1	-	0.1	0.1	-	0.1
Finance income		0.1	-	0.1	0.5	-	0.5
Finance expense		(16.4)	-	(16.4)	(19.4)	-	(19.4)
Profit before tax		125.6	(34.8)	90.8	118.7	(29.6)	89.1
Tax		(28.8)	11.9	(16.9)	(30.7)	8.3	(22.4)
Profit after tax		96.8	(22.9)	73.9	88.0	(21.3)	66.7
Earnings per ordinary share*
Basic		52.1		39.8	49.8		37.8
Diluted				39.4			37.4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 October 2011

	2011	2010
	£m	£m
Profit after tax for the year attributable to equity holders of the parent	73.9	66.7
Other recognised income
(Losses)/gains on cash flow hedges	(0.1)	1.0
Exchange differences on translation of foreign operations	(7.4)	0.4
Actuarial (losses)/gains on defined benefit pension schemes	(1.8)	4.0
Movement on deferred tax relating to cash flow hedges	-	(0.3)
Movement on deferred tax relating to pension schemes	0.4	(1.4)
Current tax on items taken directly to equity	-	0.1
Deferred tax on items taken directly to equity	0.3	(0.5)
Total comprehensive income for the year attributable to equity holders of the parent	65.3	70.0

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 October 2011

		Share	Special
	Share	premium	capital	Hedging	Revaluation	Translation	Retained	Own
	capital	account	reserve	reserve	reserve	reserve	earnings	shares	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 November 2010	1.8	120.4	12.9	(2.7)	1.4	(12.4)	209.0	(7.2)	323.2
Profit after tax for the year	-	-	-	-	-	-	73.9	-	73.9
Other comprehensive income for the year	-	-	-	(0.1)	-	(7.1)	(1.4)	-	(8.6)
Total comprehensive income for the year	-	-	-	(0.1)	-	(7.1)	72.5	-	65.3
Ordinary shares issued	0.2	110.2	-	-	-	-	-	-	110.4
Dividends paid	-	-	-	-	-	-	(22.7)	-	(22.7)
Share-based payments (net of settlement)	-	-	-	-	-	-	(2.1)	-	(2.1)
Current tax relating to share-based payments	-	-	-	-	-	-	0.7	-	0.7
Transactions in own shares	-	-	-	-	-	-	-	0.6	0.6
Transfers between reserves	-	-	-	2.8	-	-	(2.8)	-	-
At 31 October 2011	2.0	230.6	12.9	-	1.4	(19.5)	254.6	(6.6)	475.4

		Share	Special
	Share	premium	capital	Hedging	Revaluation	Translation	Retained	Own
	capital	account	reserve	reserve	reserve	reserve	earnings	shares	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 November 2009	1.8	120.3	12.9	(3.4)	1.4	(11.7)	157.5	(5.2)	273.6
Profit after tax for the year	-	-	-	-	-	-	66.7	-	66.7
Other comprehensive income for the year	-	-	-	0.7	-	0.4	2.2	-	3.3
Total comprehensive income for the year	-	-	-	0.7	-	0.4	68.9	-	70.0
Ordinary shares issued	-	0.1	-	-	-	-	-	-	0.1
Dividends paid	-	-	-	-	-	-	(18.7)	-	(18.7)
Share-based payments (net of settlement)	-	-	-	-	-	-	0.1	-	0.1
Current tax relating to share-based payments	-	-	-	-	-	-	0.1	-	0.1
Transactions in own shares	-	-	-	-	-	-	-	(2.0)	(2.0)
Transfers between reserves	-	-	-	-	-	(1.1)	1.1	-	-
At 31 October 2010	1.8	120.4	12.9	(2.7)	1.4	(12.4)	209.0	(7.2)	323.2

CONSOLIDATED BALANCE SHEET

as at 31 October 2011

		2011		2010
	£m	£m	£m	£m
			As restated#	As restated#
Non-current assets
Goodwill	243.4		231.0
Development costs	23.3		13.3
Other intangible assets	191.8		182.0
Property, plant and equipment	231.1		197.5
Interest in associate	1.5		1.1
Deferred tax	21.7		17.3
		712.8		642.2
Current assets
Inventories	146.8		141.3
Trade and other receivables	190.8		165.6
Cash and cash equivalents	91.9		58.4
Derivative financial instruments	1.9		1.9
		431.4		367.2
Total assets		1,144.2		1,009.4
Current liabilities
Borrowings	(86.0)		(65.6)
Obligations under finance leases	(2.0)		(2.6)
Trade and other payables	(212.4)		(222.3)
Provisions	(2.5)		(1.9)
Current tax liabilities	(5.6)		(7.7)
Derivative financial instruments	(1.5)		(1.6)
		(310.0)		(301.7)
Non-current liabilities
Borrowings	(262.1)		(294.6)
Obligations under finance leases	(4.4)		(3.0)
Trade and other payables	(1.2)		(1.0)
Provisions	(2.4)		(3.1)
Deferred tax	(59.0)		(52.4)
Preference shares	(0.1)		(0.1)
Retirement benefit obligations	(25.2)		(23.0)
Derivative financial instruments	(4.4)		(7.3)
		(358.8)		(384.5)
Total liabilities		(668.8)		(686.2)
Net assets		475.4		323.2
Equity
Share capital		2.0		1.8
Share premium account		230.6		120.4
Special capital reserve		12.9		12.9
Hedging reserve		-		(2.7)
Revaluation reserve		1.4		1.4
Translation reserve		(19.5)		(12.4)
Retained earnings		254.6		209.0
		482.0		330.4
Own shares		(6.6)		(7.2)
Equity attributable to equity holders of the parent		475.4		323.2
Total equity		475.4		323.2

^# The restatement above relates to the reassessment of fair value assets on prior year acquisitions (see Note 8)

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2011

		2011	2010
	Note	£m	£m
			As restated#
Cash flows from operating activities
Cash generated from underlying operations	A	124.6	128.0
Acquisition related costs		(6.6)	(6.7)
Restructuring and incident costs		(6.7)	(1.9)
Cash generated from operations		111.3	119.4
Tax paid		(17.2)	(30.0)
Net cash inflow from operating activities		94.1	89.4
Cash flows from investing activities
Dividends received from associate		0.1	0.1
Purchases of intangible assets		(12.9)	(7.8)
Purchases of property, plant and equipment		(48.8)	(40.9)
Proceeds on disposal of property, plant and equipment		0.4	-
Acquisition of subsidiary undertakings (including overdraft assumed)		(58.0)	(176.8)
Net cash outflow from investing activities		(119.2)	(225.4)
Cash flows from financing activities
Dividends paid		(22.7)	(18.7)
Interest paid		(17.8)	(14.0)
Proceeds on issues of shares		110.4	0.1
New borrowings		107.2	211.5
Capitalised facility fees		(4.8)	(2.7)
Repayments of borrowings		(112.6)	(41.7)
Proceeds from new finance leases		3.4	4.5
Repayments of finance leases		(2.6)	(0.7)
Purchase of own shares		(1.5)	(3.9)
Net cash inflow from financing activities		59.0	134.4
Increase/(decrease) in cash and cash equivalents during the year		33.9	(1.6)
Cash and cash equivalents at start of the year		58.4	61.3
Effect of foreign exchange rate changes		(0.4)	(1.3)
Cash and cash equivalents at end of the year		91.9	58.4

^# Restated figures for prior year to reflect the reclassification of certain items from underlying costs to non-underlying costs in order to conform with the current year treatment of the corresponding items (see Note 3)

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2011

	2011	2010
	£m	£m
		As restated#
A. Cash generated from operations
Operating profit from continuing operations	106.1	107.9
Operating profit from acquired operations	0.9	-
	107.0	107.9
Adjustment for:
Amortisation of development costs	2.4	2.1
Amortisation of intangible assets arising from business combinations	24.3	17.0
Amortisation of patents and licences	0.2	0.3
Loss on disposal of property, plant and equipment	0.5	0.2
Depreciation of property, plant and equipment	17.2	11.6
Gain/(loss) on fair value movements on derivatives	(2.4)	4.0
Share-based payment expense	0.2	2.3
Difference between pension contributions paid and amount  recognised in Income Statement	(0.4)	0.7
Decrease in provisions	(0.1)	(1.4)
Operating cash flows before movements in working capital	148.9	144.7
Increase in inventories	(1.2)	(19.2)
Increase in trade and other receivables	(22.5)	(44.0)
(Decrease)/increase in trade and other payables	(13.5)	37.9
Cash generated from operations	111.7	119.4
Acquisition related costs	5.7	6.7
Restructuring and incident costs	7.2	4.3
Provision release	-	(2.4)
Cash generated from underlying operations	124.6	128.0
Reconciliation of net cash flow to movement in net debt
Increase/(decrease) in cash and cash equivalents during the year	33.9	(1.6)
Decrease/(increase) in debt and lease financing due to cash flows	9.4	(171.1)
Change in net debt resulting from cash flows	43.3	(172.7)
Acquired debt	-	(5.4)
Foreign exchange differences	3.0	(5.4)
Amortisation of debt finance costs	(1.5)	(1.2)
Movement in net debt in the year	44.8	(184.7)
Net debt at start of the year	(307.5)	(122.8)
Net debt at end of the year	(262.7)	(307.5)

^# Restated figures for prior year to reflect the reclassification of certain items from underlying costs to non-underlying costs in order to conform with the current year treatment of the corresponding items (see Note 3)

Analysis of net debt
	As at	Cash	Non-cash	Exchange	As at
	1 Nov 2010	flow	changes	movement	31 Oct 2011
	£m	£m	£m	£m	£m
Cash at bank and in hand	58.4	33.9	-	(0.4)	91.9
Debt due within one year	(65.6)	(18.8)	(2.7)	1.1	(86.0)
Debt due after one year	(294.6)	29.0	1.2	2.3	(262.1)
Finance leases	(5.6)	(0.8)	-	-	(6.4)
Preference shares	(0.1)	-	-	-	(0.1)
	(307.5)	43.3	(1.5)	3.0	(262.7)

Notes

1.	ACCOUNTS AND AUDITORS' REPORT

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2011 or 31 October 2010 but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies, and those for 2011 will be delivered following the company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report,  and did not contain any statements required under either s498(2) or s498(3) of the Companies Act 2006. 

The preliminary announcement has been prepared on the basis of the accounting policies as stated in the financial statements for the year ended 31 October 2011.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs on 16 February 2012 (see Note 9 below).

2.	ANALYSIS OF REVENUE
				2011
		Continuing	Acquired	Total
		£m	£m	£m
Counter-IED		153.0	14.6	167.6
Countermeasures		200.8	-	200.8
Pyrotechnics		139.9	-	139.9
Munitions		237.0	-	237.0
		730.7	14.6	745.3

3.	RECONCILIATION OF STATUTORY OPERATING PROFIT TO
	UNDERLYING OPERATING PROFIT

Underlying profit is used by the Board to measure and monitor the underlying performance of the Group. Set out below is a reconciliation of statutory operating profit and underlying operating profit.

	2011	2010
	£m	£m
		As restated#
Statutory operating profit	107.0	107.9
Add back:
Acquisition related costs	5.7	6.7
Restructuring and incident costs	7.2	4.3
Provision release	-	(2.4)
Gain/(loss) on fair value movements on derivatives	(2.4)	4.0
Intangible amortisation arising from business combinations	24.3	17.0
Underlying operating profit	141.8	137.5

Further details on the non-underlying items are provided earlier in this preliminary results announcement.

Profit before tax and underlying profit before tax also vary by the above amounts.

4.	EARNINGS PER ORDINARY SHARE

Earnings per share are based on the average number of shares in issue of 185,633,996 (2010: 176,602,225) and profit on ordinary activities after tax of £73.9 million (2010: £66.7 million). Diluted earnings per share has been calculated using a diluted average number of shares in issue of 187,636,114 (2010: 178,388,435) and profit on ordinary activities after tax of £73.9 million (2010: £66.7 million).

The earnings and shares used in the calculations are as follows:

			2011			2010
		Ordinary			Ordinary
		shares			Shares
	Earnings	Number	EPS	Earnings	Number	EPS
	£m	000s	Pence	£m	000s	Pence
				As restated#
Basic	73.9	185,634	39.8	66.7	176,602	37.8
Additional shares issuable other than at fair value in respect of options outstanding	-	2,002	(0.4)	-	1,786	(0.4)
Diluted	73.9	187,636	39.4	66.7	178,388	37.4

The number of shares in issue differs from the number held by third parties due to the fact that the Group holds Chemring Group PLC shares in treasury.

Reconciliation from basic earnings per share to underlying earnings per share:

Underlying basic earnings are defined as earnings before acquisition related costs, restructuring and incident costs, provision release, intangible amortisation arising from business combinations and gain/(loss) on fair value movements on derivatives. The directors consider this measure of earnings allows a more meaningful comparison of earnings trends.

			2011			2010
		Ordinary			Ordinary
		shares			Shares
	Earnings	Number	EPS	Earnings	Number	EPS
	£m	000s	Pence	£m	000s	Pence
				As restated#
Basic	73.9	185,634	39.8	66.7	176,602	37.8
Non-underlying items*	22.9	-	12.3	21.3	-	12.0
Underlying	96.8	185,634	52.1	88.0	176,602	49.8

^# Restated figures for prior year to reflect the reclassification of certain items from underlying costs to non-underlying costs in order to conform with the current year treatment of the corresponding items (see Note 3)

* Before non-underlying items (see Note 3)

5.	SHARE SPLIT

At the Company's Annual General Meeting on 24 March 2011 a resolution was passed to split the Company's ordinary shares of 5p each (the "Existing Ordinary Shares") in issue or held in treasury into ordinary shares of 1p each (the "Ordinary Shares"), resulting in shareholders holding five Ordinary Shares for each Existing Ordinary Share they held prior to the share split. This share split took effect on 28 March 2011.

6.

DIVIDEND

The final dividend of 10.8p per ordinary share will be paid on 13 April 2012 to all shareholders registered at the close of business on 23 March 2012. The ex-dividend date will be 21 March 2012. The total dividend for the year will be 14.8p (2010: 11.8p). The final dividend is subject to approval by the shareholders at the Annual General Meeting, and accordingly, has not been included as a liability in the financial statements for the year ended 31 October 2011.

7.	RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

8.	BALANCE SHEET RESTATEMENT

As set out in the earlier acquisition section of this preliminary results announcement and as required under accounting standards, the Group balance sheet has been restated to reflect the updated acquired balance sheets of Roke, Mecar and Chemring Fuze Technology.  

9.	2011 FINANCIAL STATEMENTS

The financial statements for the year ended 31 October 2010 will be posted to shareholders on 16 February 2012. They will also be available from that date at the registered office, Chemring House, 1500 Parkway, Whiteley, Fareham, Hampshire PO15 7AF and will be posted on the Company's website at www.chemring.co.uk the following morning.

 

END

 

 

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